What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-09 · 180 added, 292 removed, 211 unchanged (69% of the section changed)

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS (UNAUDITED)

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and per share data)

September 30, 2020

(In thousands, except share amounts)

March 31, 2021

December 31, 2020

2 unchanged sentences

Restricted cash

Accounts receivable, net of allowance for credit losses of $ 1,346 and allowance for bad debt of $ 137 , respectively

Accounts receivable, net of allowance for credit losses of $ 2,264 and $ 1,879 , respectively

Prepaids and other assets

2 unchanged sentences

Operating lease right-of-use assets

Other noncurrent assets

Intangible assets, net

22 unchanged sentences

TOTAL LIABILITIES AND EQUITY

See Notes to the Condensed Consolidated Financial Statements

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXP WORLD HOLDINGS, INC.

1 unchanged sentence

(In thousands, except share amounts and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating expenses

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Total operating expenses

Operating income (loss)

Operating income

Other expense

Other expense, net

Other (income) expense, net

Equity in losses of unconsolidated affiliates

Total other expense, net

Income (loss) before income tax expense

Total other (income) expense, net

Income before income tax expense

Income tax expense

Net income (loss)

Net loss attributable to noncontrolling interest

Net income (loss) attributable to eXp World Holdings, Inc.

Earnings (loss) per share

Net income attributable to eXp World Holdings, Inc.

Earnings per share

Weighted average shares outstanding

Comprehensive income (loss):

Net income (loss)

Comprehensive loss attributable to noncontrolling interests

Net income (loss) attributable to eXp World Holdings, Inc.

Net income attributable to eXp World Holdings, Inc.

Other comprehensive income (loss):

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Comprehensive income (loss) attributable to eXp World Holdings, Inc.

See Notes to the Condensed Consolidated Financial Statements

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share amounts and per share data)

(In thousands)

Three Months Ended March 31,

Common stock:

Balance, beginning of quarter

Balance, end of quarter

Treasury stock:

Comprehensive

Noncontrolling

Income (Loss)

Balance, December 31, 2018

Shares issued for stock options exercised

Agent growth incentive stock compensation

Stock option compensation

Agent equity stock compensation

Foreign currency translation gain

Repurchase of common stock

Balance, March 31, 2019

Shares issued for stock options exercised

Agent growth incentive stock compensation

Stock option compensation

Agent equity stock compensation

Foreign currency translation gain

Repurchase of common stock

Balance, June 30, 2019

Balance, beginning of quarter

Repurchases of common stock

Retirement of treasury stock

Balance, end of quarter

Additional paid-in capital:

Balance, beginning of quarter

Shares issued for stock options exercised

Agent growth incentive stock compensation

Stock option compensation

Agent equity stock compensation

Foreign currency translation gain

Repurchase of common stock

Balance, September 30, 2019

Treasury Stock

Comprehensive

Noncontrolling

Income (Loss)

Balance, December 31, 2019

Net income (loss)

Shares issued for stock options exercised

Agent growth incentive stock compensation

Stock option compensation

Agent equity stock compensation

Foreign currency translation (loss)

Repurchase of common stock

Contributions by noncontrolling interests

Balance, March 31, 2020

Balance, end of quarter

Accumulated deficit:

Balance, beginning of quarter

Net income (loss)

Shares issued for stock options exercised

Agent growth incentive stock compensation

Stock option compensation

Agent equity stock compensation

Foreign currency translation gain

Repurchase of common stock

Balance, end of quarter

Accumulated other comprehensive income (loss):

Balance, beginning of quarter

Foreign currency translation gain (loss)

Balance, end of quarter

Noncontrolling interest:

Balance, beginning of quarter

Contributions by noncontrolling interests

Balance, June 30, 2020

Net income (loss)

Shares issued for stock options exercised

Agent growth incentive stock compensation

Stock option compensation

Agent equity stock compensation

Foreign currency translation (loss)

Repurchase of common stock

Balance, September 30, 2020

See Notes to the Condensed Consolidated Financial Statements

Balance, end of quarter

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXP WORLD HOLDINGS, INC.

1 unchanged sentence

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES

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Accrued expenses

Long term payable

NET CASH PROVIDED BY OPERATING ACTIVITIES

2 unchanged sentences

Acquisition of businesses, net of cash acquired

Intangible assets acquired

Other investing activities

NET CASH (USED IN) INVESTING ACTIVITIES

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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Termination of lease liabilities

Lease liabilities arising from obtaining right-of-use assets

Termination of lease liabilities

Property, plant and equipment purchases in accounts payable

Liabilities incurred associated with a business acquisition

Liabilities assumed in business acquisition

Intangible assets in accounts payable

See Notes to the Condensed Consolidated Financial Statements

The accompanying notes are an integral part of these condensed consolidated financial statements.

eXp World Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements

(Amounts in thousands, except share amounts and per share data)

(Amounts in thousands, except share amounts and per share data or noted otherwise)

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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(collectively with its subsidiaries, the “Company” or “eXp”) was incorporated in the State of Delaware on July 30, 2008.

Through various operating subsidiaries, the Company primarily operates a cloud-based real estate brokerage operating throughout the United States and most of the Canadian provinces, as well as an emerging innovation and technology services company that supports the real estate brokerage operations and third party customers operating in a number of industries.

In the fourth quarter of 2019, the Company began real estate brokerage operations in the United Kingdom (U.K.) and Australia.

Through various operating subsidiaries, the Company primarily operates a cloud-based real estate brokerage operating throughout the United States and most of the Canadian provinces.

Since the fourth quarter of 2019, the Company commenced operations in the United Kingdom (U.K.), Australia, South Africa, Portugal, France, India, Mexico, Puerto Rico, Brazil, Italy, and Hong Kong.

Our real estate brokerage is now one of the largest and fastest growing real estate brokerage companies in the United States by agent count, and recently began to expand internationally.

The Company focuses on a number of cloud-based technologies in order to grow an international brokerage without the burden of physical bricks and mortar or redundant staffing costs.

eXp World Technologies, LLC, a wholly-owned direct subsidiary of the Company, represents its innovation and technology division, which now holds the VirBELA brand.

VirBELA is an immersive technology platform for businesses, events, and education that provides a virtual experience for workers, attendees, students, and other users to communicate, collaborate, meet, and socialize.

In the fourth quarter of 2019, the Company made capital contributions in consideration for an ownership interest in First Cloud Investment Group, LLC (“First Cloud”), a Nevada limited liability company, with the remaining ownership interest held by certain independent agents and brokers.

First Cloud was organized for the purpose of managing IntroLend First Cloud, LLC (“IntroLend First Cloud”), a Delaware limited liability company and an indirect subsidiary of the Company that provides mortgage origination for end-consumers.

Under the terms of the operating agreement, the Company will maintain 50 % equity ownership interest in First Cloud.

During the start-up phase, eXp holds an interest in First Cloud greater than 50 %.

As eXp agents invest in First Cloud, agents’ interests will increase until the interest for both eXp and the aggregate agents’ interests each equal 50 %.

Refer to Note 13 – Variable Interest Entities for more information.

In the fourth quarter of 2019, the Company and its newly formed subsidiary, eXp Silverline Ventures, LLC, entered into an agreement to purchase a 50 % ownership interest in Silverline Title & Escrow, LLC (“Silverline”) with the remaining ownership interest held by a third-party investment entity.

Silverline represents an unconsolidated equity investment by eXp Silverline Ventures, LLC.

Silverline is a title agency that performs, among other functions, core title agent services (for which liabilities arises), including the evaluation of searches to determine the insurability of title, the clearance of underwriting objections, the issuance of polices on behalf of insurance companies, and, where customary, the issuance of title commitments and the conducting of title searchers.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

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These interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 11, 2021 (“2020 Annual Report”).

The Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020 are reported in thousands, whereas the Company’s consolidated financial statements as of and for the year ended December 31, 2019 were reported in whole dollars in the 2019 Annual Report.

In our opinion, the accompanying interim unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation.

Operating results for the three- and nine-month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

On January 15, 2021, the Company’s Board of Directors approved a two -for-one stock split in the form of a stock dividend to stockholders of record as of January 29, 2021 (the “Stock Split”).

The Stock Split was effected on February 12, 2021.

All shares, restricted stock units (“RSU”), stock options, and per share information have been retroactively adjusted to reflect the stock split.

Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of eXp World Holdings, Inc., its wholly-owned subsidiaries, and those entities where the Company has greater than 50 % ownership or where the Company exercises control over the operations.

The accompanying consolidated financial statements include the accounts of eXp World Holdings, Inc., its wholly-owned subsidiaries, and including those entities in which we have a variable interest of which we are the primary beneficiary.

If the Company has a variable interest in an entity but it is not the primary beneficiary of the entity or exercises control over the operations and has less than 50% ownership, it will use the equity method or the cost method of accounting for investments.

The Company uses the equity method of accounting for entities in which the Company holds a 50 % or less investment and exercises significant influence.

Entities in which the Company has less than a 20% investment and where the Company does not exercise significant influence are accounted for under the cost method.

Intercompany transactions and balances are eliminated upon consolidation.

See Note 13 – Variable Interest Entities.

Noncontrolling Interest

The Company determined that First Cloud is a variable interest entity (“VIE”), as the Company is the primary beneficiary that has both the power to direct the activities that most significantly impact the VIE and a variable interest that potentially could be significant to the VIE.

The Company treats the interest in First Cloud that it does not own as noncontrolling interest.

The noncontrolling interest balance is adjusted each period to reflect the allocation of net income (loss) and other comprehensive income (loss) attributable to the noncontrolling interest, as shown in the condensed consolidated statements of comprehensive income (loss).

The noncontrolling interest balance in the condensed consolidated balance sheets represents the proportional share of the equity of the joint venture entity, which is attributable to the minority shareholders.

Variable interest entities and noncontrolling interests

A company is deemed to be the primary beneficiary of a variable interest entity (“VIE”) and must consolidate the entity if the company has both:

(i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Joint ventures

A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity through a jointly controlled entity.

Joint control exists when strategic, financial, and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

Joint ventures are accounted for using the equity method and are recognized initially at cost.

Use of Estimate s

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances.

The Company regularly evaluates estimates and assumptions related to allowance for credit losses, legal contingencies, income taxes, revenue recognition, stock-based compensation,

goodwill, and deferred income tax asset valuation allowances.

The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

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Reclassifications

The Company has reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation, specifically the allowance for credit losses/bad debt on receivables is now separately disclosed as its own line item on the Company’s Condensed Consolidated Statement of Cash Flows, previously it was included in the accounts receivable line item.

Cash and cash equivalents

The Company considers all highly liquid investments with maturity when purchased of three months or less to be cash equivalents.

From time to time, the Company’s cash deposits exceed federally insured limits.

The Company has not experienced any losses resulting from holding deposits in accounts in excess of federal insurance limits.

The Company has reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.

No material reclassifications occurred during the current period.

Restricted cash

Restricted cash consists of cash held in escrow by the Company on behalf of real estate buyers.

The Company recognizes a corresponding customer deposit liability until the funds are released.

Once the cash transfers from escrow, the Company reduces the respective customers’ deposit liability.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.

December 31, 2019

December 31, 2018

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents, and restricted cash, beginning balance

September 30, 2020

September 30, 2019

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents, and restricted cash, ending balance

Restricted cash consists of cash held in escrow by the Company’s brokers and agents on behalf of real estate buyers.

The Company recognizes a corresponding customer deposit liability until the funds are released.

Once the cash transfers from escrow, the Company reduces the respective customers’ deposit liability.

Stock-based compensation

Stock-based compensation is comprised of agent growth incentive programs, agent equity program, and stock option awards.

Stock-based compensation is more fully disclosed in Note 6 – Equity.

The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method.

Stock-based compensation awards are measured at the grant date fair value and stock based compensation is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures.

The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met.

Goodwill represents the excess of the consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination.

The Company evaluates goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill is below its carrying value.

Generally, this evaluation begins with a qualitative assessment to determine if the fair value of the reporting unit is more likely than not less than its carrying value.

The test for impairment requires management to make judgments relating to future cash flows, growth rates and economic and market conditions.

In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred.

Revenue recognition

The Company generates substantially all of its revenue from real estate brokerage services and generates a de minimis portion of its revenues from software subscription and professional services.

Real Estate Brokerage Services

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing residential real estate transactions.

The Company is contractually obligated to provide services for the fulfillment of transfers of residential real estate between buyers and sellers.

The Company provides these services itself and controls the services necessary to legally transfer the residential real estate.

Correspondingly, the Company is defined as the principal.

The Company, as principal, satisfies its obligation upon the closing of a residential real estate transaction.

As principal, and upon satisfaction of the performance obligation, the Company recognizes revenue in the gross amount of consideration to which the Company expects to be entitled.

Revenue is derived from assisting home buyers and sellers in listing, marketing, selling, and finding residential real estate.

Commissions earned on real estate transactions are recognized at the completion of a residential real estate transaction once the Company has satisfied the performance obligation.

Agent related fees are currently recorded as a reduction to commissions and other agent related costs.

Software Subscription and Professional Services

Subscription revenue is derived from fees from customers to access the Company’s virtual reality software platform.

The terms of subscriptions do not provide customers the right to take possession of the software.

Subscription revenue is generally recognized ratably over the contract term.

Professional services revenue is derived from implementation and consulting services.

Professional services revenue is typically recognized over time as the services are rendered, using an efforts-expended (labor hours) input method.

Software subscription and professional services revenue accounts for less than 1 % of all revenue for the three and nine months ended September 30, 2020 and 2019.

The Company does not currently collect sales and use taxes on fees from agents and brokers and assumes responsibility to pay these costs to the appropriate taxing authorities.

Disaggregated revenue

The Company primarily operates as a real estate brokerage firm.

The vast majority of the Company’s revenue is derived from providing a single service, real estate brokerage services, to purchasers and sellers of homes in the U.S.

See Note 12 – Segment information for details regarding segment and geographic information.

Management believes that no disaggregation of revenue from services to customers currently exists that would provide additional insight into the future recognition of revenue and cash flows.

Balance, December 31, 2019

Balance, March 31, 2020

Balance, December 31, 2020

Balance, March 31, 2021

Recently Adopted Accounting Principles and Change in Accounting Principle

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”).

ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets.

The ASU amends the impairment model to utilize an expected loss methodology and replaces the incurred loss methodology for financial instruments including trade receivables.

The amendment requires entities to consider other factors, such as economic conditions and future economic conditions.

The Company adopted ASU 2016-13 effective January 1, 2020 and concluded it did not have a material impact on either the financial position, results of operations, cash flows, or related disclosures of the Company.

There was no impact on beginning balance retained earnings upon adoption of this ASU.

See Note 3 – Expected Credit Losses for more information.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which removes certain disclosure requirements related to the

fair value hierarchy, such as removing the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement.

The Company adopted ASU 2018-13 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15 – Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”).

The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract.

ASU 2018-15 requires a customer in a hosting arrangement to capitalize certain implementation costs.

Costs associated with the application development stage of the implementation should be capitalized and costs with the other stages should be expensed.

The Company adopted ASU 2018-15 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740) (“ASU 2019-12”).

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12 – Income Taxes (Topic 740) (“ASU 2019-12”).

ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations and adds guidance to reduce complexity in accounting for income taxes.

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early adoption is permitted.

The Company is still assessing the amendments of ASU 2019-12 and the impact the amendments will have on the Company’s consolidated financial statements and related disclosures.

The adoption of ASU 2019-12 had no material impact on the Company’s condensed consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

This guidance is optional for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting.

This guidance is effective from March 12, 2020 through December 31, 2022.

Entities may elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

In January 2021, the FASB amended this Update to clarify certain optional expedients and exceptions for contract modifications and hedge accounting that apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

The Company does not have any material contracts, hedging or other transactions that reference LIBOR, and we do not expect to utilize the expedients and exceptions provided in this guidance.

EXPECTED CREDIT LOSSES

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The Company analyzed uncollectable accounts for the three categories of receivables and concluded that only agent non-commission based fees receivables and agent short-term advances carry any risk of expected credit losses.

Current economic conditions and forecasts of future economic conditions do not affect expected credit losses of or uncollectable real estate property settlements.

Current economic conditions and forecasts of future economic conditions do not affect expected credit losses of uncollectable real estate property settlements.

The collection of these payments is in-substance guaranteed because they represent commission payments on closed transactions, and the Company has no historical experience or expectation of losses related to these receivables.

Receivables from real estate property settlements totaled $ 90,981 as of September 30, 2020.

As of September 30, 2020, agent non-commission based fees receivable and short-term advances totaled $ 3,847 , of which the Company recognized expected credit losses of $ 1,346 .

Receivables from real estate property settlements totaled $ 85,412 and $ 73,838 as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021 and December 31, 2020, agent non-commission based fees receivable and short-term advances totaled $ 5,327 and $ 4,992 , of which the Company recognized expected credit losses of $ 2,264 and $ 1,879 , respectively.

The Company increases the allowance for expected credits losses when the Company determines all or a portion of a receivable is uncollectable.

The Company recognizes recoveries as a decrease to the allowance for expected credit losses.

Changes in the allowance were not material for the three and nine months ended September 30, 2020.

Changes in the allowance were not material for the three months ended March 31, 2021.

PLANT, PROPERTY AND EQUIPMENT, NET

Fixed assets, net consisted of the following:

September 30, 2020

March 31, 2021

December 31, 2020

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Property, plant, and equipment, net

For the three months ended September 30, 2020 and 2019, depreciation expense was $ 852 and $ 559 , respectively.

For the nine months ended September 30, 2020 and 2019, depreciation expense was $ 2,403 and $ 1,381 , respectively.

For the three months ended March 31, 2021 and 2020, depreciation expense was $ 1,007 and $ 757 , respectively.

GOODWILL AND INTANGIBLE ASSETS

Goodwill was $ 10,558 as of September 30, 2020 and $ 8,248 as of December 31, 2019.

On July 31, 2020, the Company acquired Showcase Web Sites, LLC (“Showcase”) for total consideration of $ 3.0 million, including goodwill of $ 2.3 million.

The Showcase acquisition has been accounted for using the acquisition method of accounting.

Under the acquisition method of accounting, the Company allocated the total purchase price to the tangible and identifiable intangible assets acquired, and assumed liabilities based on their estimated fair values as of the acquisition date, as determined by management.

The excess of the purchase price over the aggregate fair values of the identifiable assets was recorded as goodwill.

Goodwill generated from the acquisition is primarily attributable to an assembled workforce and planned expansion of Showcase into new markets.

Due to the ongoing COVID-19 pandemic, the Company assessed the current economic environment and its goodwill for impairment during the nine months ended September 30, 2020.

The current assessment combined with the performance and expected forecast in relation to the results of the annual impairment test performed for 2019 indicated that it was not more likely than not that goodwill was impaired.

Goodwill was $ 12,945 as of March 31, 2021 and December 31, 2020.

The Company has a risk of future impairment to the extent that individual reporting unit performance does not meet projections.

Additionally, if current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of the Company’s control change unfavorably, the estimated fair value of goodwill could be adversely affected, leading to a potential impairment in the future.

For the three months ended March 31, 2021, no events occurred that indicated it was more likely than not that goodwill was impaired.

Definite-lived intangible assets were as follows:

September 30, 2020

March 31, 2021

December 31, 2020

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Licensing agreement

Intellectual property

Total intangible assets

Definite-lived intangible assets are amortized using the straight-line method over an asset’s estimated useful life.

Amortization expense for definite-lived intangible assets for the three months ended September 30, 2020 and 2019 was $ 152 and $ 83 , respectively.

Amortization expense for definite-lived intangible assets for the nine months ended September 30, 2020 and 2019 was $ 382 and $ 235 , respectively.

In connection with the Showcase acquisition, the Company acquired identifiable intangible assets.

The purchase price allocation to identifiable intangible assets acquired were valued at a total of $ 652 , including $ 277 for tradename, $ 135 for existing technology, and $ 240 for customer contracts.

The allocation of the fair value of the acquired business was based on preliminary valuations of the estimated net fair value of the assets acquired.

The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the acquisition date of July 31, 2020).

As of September 30, 2020, the Company had 72,321,867 shares of common stock issued and 69,952,115 shares outstanding.

The Company’s shareholder approved equity plans are administered under the 2013 Stock Option Plan and the 2015 Equity Incentive Plan.

Amortization expense for definite-lived intangible assets for the three months ended March 31, 2021 and 2020 was $ 303 and $ 103 , respectively.

The Company has no indefinite-lived assets.

The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years , with the weighted average lease term being three years .

Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements.

These leases generally also include real estate taxes.

Short term leases, having a lease term at commencement of 12 months or less, are not capitalized and the expenses are recognized in the period incurred.

Included below is other information regarding leases for the periods presented:

Three Months Ended March 31,

Other information

Operating lease expense

Short-term lease expense

Cash paid for operating leases

Weighted-average remaining lease term (years) – operating leases (1)

Weighted-average discount rate – operating leases

(1) The Company’s lease terms include options to extend the lease when it is reasonably certain the Company will exercise its option.

Additionally, the Company considered any historical and economic factors in determining if a lease renewal or termination option would be exercised.

As of March 31, 2021, expirations of lease obligations by fiscal year were as follows:

Period Ending December 31,

Remaining 2021

2026 and thereafter

Total lease payments

Total operating lease liabilities

The Company issued unsecured promissory notes in the aggregate principal amount of $ 1.5 million in connection with the acquisition of Showcase Web Sites, L.L.C.

(“Showcase”) in July 2020.

The promissory notes accrue interest of 8 % per annum, and interest is payable monthly beginning six months after the closing date.

On March 2, 2021, the Company repaid all outstanding promissory notes issued to the previous owners of Showcase and notes payable assumed as part of the acquisition.

The repayments totaled approximately $ 1.7 million representing the principal balance plus accrued interest and unpaid fees.

The repayments of the notes payable did not result in a gain or loss on early extinguishment.

STOCKHOLDERS’ EQUITY

The following table represents a reconciliation of the Company’s common stock for the periods presented:

Three Months Ended March 31,

Common stock:

Balance, beginning of quarter

Shares issued for stock options exercised

Agent growth incentive stock compensation

Agent equity stock compensation

Balance, end of quarter

The Company’s stockholder approved equity plans described below are administered under the 2013 Stock Option Plan and the 2015 Equity Incentive Plan.

Although a limited number of awards under the plan remain outstanding, no awards have been granted under the 2013 Stock Option Plan since 2015.

The purpose of the equity plans is to retain the services of valued employees, directors, officers, agents, and consultants and to incentivize such persons to make contributions to the Company and motivate excellent performance.

Agent Equity Program

The Company provides agents and brokers the opportunity to elect to receive 5 % of commissions earned from each completed residential real estate transaction in the form of common stock.

The Company provides agents and brokers the opportunity to elect to receive 5 % of commissions earned from each completed residential real estate transaction in the form of common stock (the “Agent Equity Program” or “AEP”).

If agents and brokers elect to receive portions of their commissions in common stock, they are entitled to receive the equivalent number of shares of common stock, based on the fixed monetary value of the commission payable.

Prior to January 1, 2020, the Company recognized a 20 % discount on these issuances as an additional cost of sales charge during the periods presented.

Beginning in January 2020, the Company amended the Agent Equity Plan and changed the discount on issued shares from 20 % to 10 %.

During the three months ended September 30, 2020 and 2019, the Company issued approximately 620,797 and 1,252,540 shares of common stock, respectively, to agents and brokers for $ 19,929 and $ 11,110 , respectively, net of discount.

During the nine months ended September 30, 2020 and 2019, the Company issued approximately 2,465,645 and 2,808,004 shares of common stock, respectively, to agents and brokers for $ 39,226 and $ 27,554 , respectively, net of discount.

The Company recognizes a 10 % discount on these issuances as an additional cost of sales charge during the periods presented.

During the three months ended March 31, 2021 and 2020, the Company issued 424,084 and 1,833,306 shares of common stock, respectively, to agents and brokers with a value of $ 21,402 and $ 8,794 , respectively, inclusive of discount.

Agent Growth Incentive Program

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks.

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks (the “Agent Growth Incentive Program” or “AGIP”).

The incentive program encourages greater performance and awards agents with common stock based on achievement of performance milestones.

Awards typically vest after

performance benchmarks are reached and three years of subsequent service is provided to the Company.

Awards typically vest after performance benchmarks are reached and three years of subsequent service is provided to the Company.

Share-based performance awards are based on a fixed-dollar amount of shares based on the achievement of performance metrics.

As such, the awards are classified as liabilities until the number of share awards becomes fixed once the performance metric is achieved.

For the three months ended September 30, 2020, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $ 3,711 , of which the total amount of stock compensation attributable to liability classified awards was $ 731 .

For the nine months ended September 30, 2020, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $ 10,476 , of which the total amount of stock compensation attributable to liability classified awards was $ 2,256 .

For the three months ended March 31, 2021, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $ 5,472 of which the total amount of stock compensation attributable to liability classified awards was $ 3,314 .

Stock compensation expense related to the Agent Growth Incentive Program is included in general and administrative expense in the condensed consolidated statements of comprehensive income (loss).

The following table illustrates changes in the Company’s stock compensation liability for the nine months ended September 30, 2020:

The following table illustrates changes in the Company’s stock compensation liability for the periods presented:

Balance, December 31, 2020

Stock grant liability increase at March 31, 2020

Stock grants reclassified from liability to equity at March 31, 2020

Stock grant liability increase at June 30, 2020

Stock grants reclassified from liability to equity at June 30, 2020

Stock grant liability increase at September 30, 2020

Balance, September 30, 2020

Stock grant liability increase year to date

Balance, March 31, 2021

Stock Option Awards

During the three and nine months ended September 30, 2020, the Company granted 1,117,708 and 1,516,751 stock options, respectively, to employees with an estimated grant date fair value of $ 21.39 and $ 18.32 per share, respectively.

During the three months ended March 31, 2021, and 2020, the Company granted 127,265 and 303,164 stock options, respectively, to employees with an estimated grant date fair value of $ 26.01 and $ 4.41 per share, respectively.

The fair value was calculated using a Black Scholes-Merton option pricing model.

On July 31, 2020, the Compensation Committee of the Company’s Board of Directors approved compensation changes for Glenn Sanford, Chief Executive Officer and Chairman of the Board of the Company.

The Board-approved compensation package is composed of two option grants, each for 500,000 options.

One of the 500,000 option grants for common stock in eXp subject to the terms of the Company’s 2015 Equity Incentive Plan, as amended, that shall vest monthly over three years .

An additional 500,000 options to be granted subject to the terms of the Company’s 2015 Equity Incentive Plan, as amended, vesting quarterly over three years subject to certain performance metrics.

Stock Repurchase Plan

In December 2018, the Company’s board of directors (“the Board”) approved a stock repurchase program authorizing the Company to purchase up to $ 25 million of its common stock, which was later amended in November of 2019 to increase the authorized repurchase amount to $ 75 million.

In December 2018, the Company’s board of directors (“the Board”) approved a stock repurchase program authorizing the Company to purchase up to $ 25.0 million of its common stock, which was later amended in November 2019 and again in June 2020 increasing the authorized repurchase amount to $ 75.0 million.

In December 2020, the Board approved another amendment to the repurchase plan, increasing the total amount authorized to be purchased from $ 75.0 million to $ 400.0 million.

Purchases under the repurchase program may be made in the open market or through a 10b5-1 plan and are expected to comply with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

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The repurchase program does not require the Company to acquire a specific number of shares.

The cost of the shares that are repurchased is funded from available working capital.

The repurchase program began on January 2, 2019 and was discontinued in March 2020.

In June 2020 the stock repurchase plan resumed due to the Company’s better than expected performance for the first half of 2020.

The cost of the shares that are repurchased is funded from cash and cash equivalents on hand.

For accounting purposes, common stock repurchased under the stock repurchase programs is recorded based upon the settlement date of the applicable trade.

Such repurchased shares are held in treasury and are presented using the cost method.

During the three and nine months ended September 30, 2020, the Company repurchased 321,974 and 1,444,388 shares, respectively, of common stock at a total cost of $ 9,343 and $ 21,330 , respectively.

These shares are considered issued but not outstanding.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed based on net income (loss) attributable to eXp shareholders divided by the basic weighted-average shares outstanding during the period.

These shares are not retired and are considered issued but not outstanding.

The following table shows the changes in treasury stock for the periods presented:

Three Months Ended March 31,

Treasury stock:

Balance, beginning of quarter

Repurchases of common stock

Balance, end of quarter

EARNINGS PER SHARE

Basic earnings (loss) per share is computed based on net income (loss) attributable to eXp stockholders divided by the basic weighted-average shares outstanding during the period.

Dilutive earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period.

The Company uses the treasury stock method to reflect the potential dilutive effect of unvested stock awards and unexercised options.

The Company uses the if-converted method to reflect the potential dilutive effect of the stock settled consideration in connection with the VirBELA acquisition.

The Company uses the if-converted method to reflect the potential dilutive effect of a $ 1.0 million payment obligation relating to the November 2018 acquisition of Virbela, LLC, that may be paid in cash or common stock in November 2021.

The following table sets forth the calculation of basic and diluted earnings per share attributable to common stock during the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income (loss) attributable to common stock

Weighted average shares - basic

Dilutive effect of common stock equivalents

Weighted average shares - diluted

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Earnings (loss) per share attributable to common stock- diluted

Total outstanding shares of common stock for the three months ended September 30, 2020 excluded 78,311 shares from the computation of diluted earnings per share because their effect would have been anti-dilutive.

Total outstanding shares of common stock for the nine months ended September 30, 2020 excluded 77,363 shares from the computation of diluted earnings per share because their effect would have been anti-dilutive.

For the three months ended March 31, 2021, total outstanding shares of common stock excluded 6,506 shares from the computation of diluted earnings per share because their effect would have been anti-dilutive.

Our quarterly tax provision is computed by applying the estimated annual effective tax rate to the year-to-date pre-tax income or loss and adjust for discrete tax items in the period.

The Company’s provision for income tax expense amounted to $ 0.2 million and $ 0.01 million for the three months ended March 31, 2021 and 2020, respectively, which represented an effective tax rate of 4.17 % and 7.61 %, respectively.

The increase in income tax expense was primarily attributable to increased profitability and changes to our geographic mix of earnings, partially offset by higher deductible share-based compensation expenses.

We periodically evaluate the realizability of our deferred tax assets based on all available evidence, both positive and negative.

The realization of the net deferred tax assets is dependent on our ability to generate sufficient future taxable income during the periods prior to the expiration of tax attributes to fully utilize these assets.

As of March 31, 2021, based on our assessment of the realizability of our net deferred tax assets, we continued to maintain a full valuation allowance against all of our federal and state net deferred tax assets.

Management has evaluated our recent profitability trends and believes that, if current trends persist, there is a reasonable possibility that within the current fiscal year, sufficient positive evidence may become available to allow us to reach the conclusion that a significant portion of the valuation allowance will no longer be needed.

Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded.

However, the exact timing and amount of the valuation allowance to be released are subject to change based on the positive evidence, including, but not limited to, the level of expected profitability, that we are able to actually achieve in future periods.

On March 11, 2021, The American Rescue Plan Act of 2021 (“ARPA Act”) was signed into law.

We evaluated the applicable provisions of the ARPA Act and determined that there is no material impact expected to our financial results.

We will continue to monitor future guidance issued regarding the ARPA Act to determine any future impacts to our financial results.

FAIR VALUE MEASUREMENT

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The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values.

Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Categorization within the fair value hierarchy is based on the

lowest level of input that is significant to the fair value measurement.

The fair value hierarchy is defined into the following three categories:

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The Company values its money market funds at fair value on a recurring basis.

As of September 30, 2020 and December 31, 2019, the fair value of the Company’s money market funds was $ 33,378 and $ 18,281 , respectively.

As of March 31, 2021 and December 31, 2020, the fair value of the Company’s money market funds was $ 53,382 and $ 53,380 , respectively.

There have been no transfers between Level 1, Level 2 and Level 3 in the period presented.

The Company did not have any Level 2 or Level 3 financial assets or liabilities in the period presented .

The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years , with the weighted average lease term being three years .

Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements.

These leases generally also include real estate taxes.

Short term leases, having a lease term at commencement of 12 months or less, are not capitalized and the expenses are recognized in the period incurred.

Included below is other information regarding leases for the three and nine months ended September 30, 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

Other information

Operating lease expense

Short-term lease expense

Cash paid for operating leases

Weighted-average remaining lease term (years) – operating leases (1)

Weighted-average discount rate – operating leases

(1) The Company’s lease terms include options to extend the lease when it is reasonably certain the Company will exercise its option.

Additionally, the Company considered any historical and economic factors in determining if a lease renewal or termination option would be exercised.

As of September 30, 2020, maturities of lease liabilities by fiscal year were as follows:

Remaining 2020

2025 and thereafter

Total lease payments

Total operating lease liabilities

The Company issued unsecured promissory notes in the aggregate principal amount of $ 1.5 million in connection with the Showcase acquisition in July 2020.

The promissory notes accrue interest of 8 % per annum, and interest is payable monthly beginning six months after the closing date.

The first installment payment of outstanding principal in the amount of $ 0.5 million is due on July 31, 2021, the first anniversary of the closing date, with the second installment payment for the remaining $ 1.0 million of outstanding principal payable on July 31, 2022, the second anniversary of the closing date.

The Company’s quarterly tax provision is based upon an estimated annual effective tax rate.

The Company’s provision for income taxes has not been historically significant to the business as the Company has incurred operating losses to date.

The company has non-U.S.

activities and is subject to local country income tax.

The provision for income taxes consists primarily of state taxes in jurisdictions in which the Company conducts business.

The Company’s provision for income taxes was $ 0.23 million and $ 0.30 million for the three and nine months ended September 30, 2020, respectively, with an effective tax rate of 1.38 % and 1.22 %, respectively, and $ 0.03 million and $ 0.24 million for the three and nine months ended September 30, 2019, respectively, with an effective tax rate of ( 2.29 )% and ( 2.51 )%, respectively.

The effective tax rate differs from the U.S.

statutory tax rate primarily due to the valuation allowances on the Company’s deferred tax assets as it is more likely than not that some or all of the Company’s deferred tax assets will not be realized.

SEGMENT INFORMATION

Historically, management has not made operating decisions nor assessed performance based on geographic locations.

Rather, the chief operating decision maker makes operating decisions and assesses performance based on the products and services of identified operating segments.

While management does consider real estate and brokerage services, technology services, and affiliated services to be identified operating segments, the profits and losses and assets of the acquired technology and affiliated services segment are not material.

Historically, management has not made operating decisions and assessed performance based on geographic locations.

Rather, the chief operating decision-maker makes operating decisions and assesses performance based on the products and services of the identified operating segments.

While management does consider real estate and brokerage services, the acquired technology and affiliated services provided to be identified operating segments, the profits and losses and assets of the technology and affiliated services business units are not material.

Operating Segments

The Company primarily operates as a cloud-based real estate brokerage.

The real estate brokerage business represents 99.7 % and 99.9 % of the total revenue of the Company for the nine months ended September 30, 2020 and 2019, respectively.

The real estate brokerage business represents 96.5 % and 95.8 % of the total assets of the Company as of September 30, 2020 and December 31, 2019, respectively.

The real estate brokerage business represents 99.3 % and 99.9 % of the total revenue of the Company for the three months ended March 31, 2021 and 2020, respectively.

The real estate brokerage business represents 99.0 % and 98.9 % of the total assets of the Company as of March 31, 2021 and December 31, 2020, respectively.

The Company offers software subscriptions to customers to access its virtual reality software platform.

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However, the operations and assets of the technology segment are not managed by the Company’s chief operating decision-maker as a separate reportable segment.

Services provided through First Cloud and eXp Silverline are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total net income (loss) or total assets as of September 30, 2020.

The Company aggregates the identified operating segments for reporting purposes.

Services provided through First Cloud and Silverline are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total net income (loss) or total assets as of March 31, 2021.

The Company aggregates the identified operating segments for reporting purposes and has one reportable segment.

Geographical Information

The Company primarily operates within the real estate brokerage markets in the United States and Canada.

During the fourth quarter of 2019, the Company expanded operations into the UK and Australia.

During the previous two years, the Company expanded operations into the U.K., Australia, South Africa, Portugal, France, India, Mexico, Puerto Rico, Brazil, Italy, and Hong Kong.

The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities.

For the nine months ended September 30, 2020 and 2019, approximately 5 % and 2 %, respectively, of the Company’s total revenue was generated outside of the U.S.

For the three months ended March 31, 2021 and 2020, approximately 7 % and 4 %, respectively, of the Company’s total revenue was generated outside of the U.S.

Assets held outside of the U.S.

were 7 % and 9 % as of September 30, 2020 and December 31, 2019

were 12 % and 7 % as of March 31, 2021 and December 31, 2020, which primarily consist of cash and cash equivalents and restricted cash held in Canada.

The Company’s technology services and affiliated services are currently provided primarily in the U.S.

VARIABLE INTEREST ENTITIES

A company is deemed to be the primary beneficiary of a VIE and must consolidate the entity if the company has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

T he Company has concluded that First Cloud is a VIE and that it is the primary beneficiary as it has the power to direct the activities of First Cloud and has an economic interest that will absorb the losses and/or receive benefits that could be significant to the VIE.

Accordingly, the Company consolidates the assets and liabilities and operating results of First Cloud in the condensed consolidated financial statements.

The Company recognizes noncontrolling interest in the condensed consolidated balance sheets.

The income or loss allocations reflected on the condensed consolidated statements of comprehensive income (loss) may create volatility in the reported results of operations, including net losses attributable to common stockholders.

The financial information of First Cloud is presented below.

September 30, 2020

December 31, 2019

Prepaids and other assets

Liabilities & Equity

Membership interests payable

Accounts payable

Total liabilities

Total liabilities & equity

Nine Months Ended September 30,

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements